Spending Wisely vs. Being Cheap

The financial aspects of running a law firm can be maddening. Law school trains you to think like a lawyer. It does not provide business skills—let alone teach you how to run a business.

As a result, many small-firm lawyers think the best way to run a business is to scrimp, scrounge, and save every possible penny to reduce overhead. They think they will make more money because they don’t spend much to keep their law firm going.

But there’s a big difference between spending smart and saving money just to save money.

You Have to (Wisely) Spend Money to Run Your Business

Keeping overhead low is a mantra for any small business owner. Low overhead means fewer expenses, which should result in more profits (income – expenses = profit). That should mean more money in your pocket. But there are basic expenses that are essential to running a business.

As a starting point, you need:

  • A way for clients to contact you (phone + website).
  • A way to work (computer).
  • A place to work (some form of office).
  • A way to get clients (all forms of marketing).

Depending on your practice area, how much you spend on those essentials will vary based on your needs. Regardless, the essentials demonstrate the obvious—you have to spend money to make money. You can spend as much, or as little, as you want on those essentials, but you have to spend something.

For example, on the low end, you should be able to get shared office space or a co-working space for around $250 a month. If you are just starting out, that may work just fine.

If you need a one-room office, you are probably looking at $500–1,000, depending on location and amenities. If you have high-end clients that expect a nicer office or a better location, spending more for a nice office is worth it.

Marketing in all forms costs money. Print advertising and especially online advertising can get outrageously expensive. Developing a referral network is not free. You will have to buy people lunch, drinks, dinners, and tickets to sporting events. And yes, that can get spendy. But if those efforts result in good clients, that is probably going to be an excellent return on investment. If you build and maintain a strong referral network, it should result in a steady stream of clients.

Same thing with office equipment and furniture. You don’t need a giant oak desk, but your former high school desk probably is not going to work either. If your computer has an 11-inch screen, spend a couple hundred bucks to buy an external monitor for your office. You need something that looks like you are running a real office.

Spending Money to Be More Productive Is Money Well Spent

Buying useful technology that is helpful to you, but not strictly necessary, is a prime example of when spending is smart.

For example, I “overspend” on computers and monitors. I am a speed freak and a productivity freak. When I am working, I want to be able to work quickly, seamlessly, and get things done.

When I’ve gotten stuck using an old computer, I lose it. I wait five minutes for the computer to boot up or open a program. When I try to draft discovery requests or responses on my laptop with a 13” screen, I lose my mind because I cannot make the documents full screen to compare them side by side. In both situation, I still can get my work done, but it takes longer, and it drains my mental energy.

That’s why I have a MacBook Pro with a giant 27” inch monitor at my office. Do I need the best MacBook Pro, which is designed to edit HD movies? Absolutely not. But if it is designed to do that, it can certainly handle all of my processing needs.

Having a giant monitor is the equivalent of flying first class. It means I can work faster, which leaves more time for other tasks. Also, a big monitor makes it much easier for me to meet with clients to review complaints and discovery responses. Again, easier usually means faster. Faster usually means freeing up time for other tasks.

And there’s another great reason to buy the right technology intelligently—it lasts much longer. In 2017, I am writing this post on my 2012 MacBook Pro. I bought the best model, upgraded the RAM, and threw in a solid state drive last year. It currently runs just a notch slower than the 2017 MacBook Pros. Spending $1,300 on a laptop that lasts five years is smart.

I don’t have any support staff, but I can imagine a similar analysis is applicable for handling phone calls from potential clients. If you can use a virtual answering service for a modest amount and then make valuable use of that extra time, that’s money well spent.

The bottom line is that if you can pinpoint certain items or services that increase your productivity, spending money on those things is very wise.

Spending Money to Create and Obtain More Business Is Money Well Spent

My firm has been around for nearly seven years now, which gives me a pretty good baseline of what the firm will generate each year. Right now, I want to expand, which is exhilarating and terrifying.

There are months when I do the work of two attorneys. And there are days where I take long coffee breaks and stare at the phone. And if I’m paying for myself and another attorney, those lean days or weeks will cause major problems.

To expand, I have spent the past few months (over-)analyzing new ways to get more good clients. There are advertising options, marketing options, hiring a Google AdWords consultant, and even meeting with an internet SEO wizard. Some options have been more appealing than others, but they all have forced me to think hard about return on investment, the value of a new client, and the cost of obtaining new clients.

Let’s say your average case results in $2,000 in attorney fees. And let’s say if you spend another $1,000 per month in advertising, you can get three more cases worth at least that much. That is money well spent. And for the sake of this example, let’s assume that another $1,000 in advertising doesn’t cause your phone to ring incessantly with tire kickers, which are actually a drain on your time.

There are less—and more—expensive options to consider. Maybe if you spend another $100/month on an ad in your local newspaper or church newsletter, you could get a $500 client. Or if you drop $5,000 a month on a billboard, you’ll nab another $15,000 in business.

How much you spend depends on a number of factors. Cash flow is important. Return on investment is important. Knowing if the advertising actually works is critical. It’s one thing to experiment with a $100 advertisement or even a $500 advertisement. It’s another thing to spend mid-four figures and not see results.

You are in the best position to decide which option works for you. At some point, experimenting with new options is worth some risk—you might be sitting on a potential goldmine of new clients.

Saving Money Is Great until It Becomes Counterproductive

If you clip coupons and only buy things on Black Friday, running a business might be a challenge for you. I wish I had a more eloquent way to put it, but time is money.

For example, driving around for ten minutes so you can save two bucks on parking is not worth your time. The same goes for spending an hour each week staring at your books and meticulously searching for a way to save a few bucks. If that takes away 10–20 minutes per day, that’s 50–100 minutes per week you could spend on working on cases, having a valuable networking lunch, or writing blog posts for your website.

Here’s one more example that I frequently see from other young attorneys: avoiding networking events and lunches because they don’t want to spend $20–40. It’s one thing if you go there and stare at your phone—that is a waste of money.

But if you possess basic social skills, turning down networking opportunities is a terrible way to try and save money. Building a personal network is one of the most important things you can do. You can easily do that by going to 2–4 lunches a month.

Recently, there was a lengthy debate on a local small-firm listserv about whether to pay for fax service. Last time I checked, an electronic fax service costs about $60–75 a year (that’s about $5–6 a month). I don’t get many faxes, but I get some. For outstate clients, it may be easier to find a fax machine compared to a scanner. But if you find yourself spending more than 2 minutes analyzing whether you should spend $60 a year on something like that, you are wasting your time.

Bottom Line: Loosen Those Purse Strings

I’ve never been accused of throwing money around in my personal life. And that carries over to my business—I spend my money wisely. But I do actually spend money, which is an important distinction.

Don’t be afraid to spend on the things that make you more productive, and never be afraid to spend money on how you get good clients. That’s smart spending and good business.

Originally published 2013-03-26. Updated 2017-03-02. Republished 2019-12-20.

Randall Ryder
Randall Ryder is the Director of Appellate Advocacy & Lecturer in Law at the University of Minnesota Law School.